CONSUMER prices up 0.4 percent, boosted by jump in energy costs

<br>WASHINGTON (AP) _ Consumer inflation rose in May, largely reflecting a big jump in gasoline and electricity costs. Manufacturing activity plunged for the eighth month in a row. <br><br>The Labor Department

Friday, June 15th 2001, 12:00 am

By: News On 6

WASHINGTON (AP) _ Consumer inflation rose in May, largely reflecting a big jump in gasoline and electricity costs. Manufacturing activity plunged for the eighth month in a row.

The Labor Department reported Friday that its Consumer Price Index, the government's most closely watched inflation gauge, climbed by a seasonally adjusted 0.4 percent last month, following a 0.3 percent increase in April.

The Federal Reserve said industrial output at the nation's factories, mines and utilities fell by 0.8 percent in May, a drop double what analysts were predicting and the worst showing since January.

Operating capacity plummeted to 77.4 percent in May, the lowest level since August 1983.

Stocks prices plunged as trading opened Friday but by late morning had regained most of the losses. The Dow Jones industrial average was down 3 points and the Nasdaq was down 1 point.

The industrial sector has been hardest hit by the economic slowdown that has gripped the country since the second half of last year. While the national economy has slowed markedly, manufacturing is in a recession and has lost a half-million jobs this year alone.

The Fed's report, which provides further evidence of the struggling economy, comes one day after Jerry Jasinowski, president of the National Association of Manufacturers, said the darkest days of his industry's recession may be over. He projected a recovery beginning in the last quarter of this year.

However, Federal Reserve Chairman Alan Greenspan and other Fed officials have suggested the economic weakness may be around for a while.

In the CPI report, The ``core'' rate of inflation, which excludes volatile energy and food prices, inched up a tiny 0.1 percent in May, compared with a 0.2 percent rise the month before, suggesting that most other prices were well controlled. The core performance was better than what many analysts were predicting and marked the best showing in five months.

With inflation well-contained, the Federal Reserve has been able to act aggressively to stave off recession, slashing interest rates five times this year and driving down borrowing costs to the lowest point in seven years.

Economists predict Fed Chairman Alan Greenspan and his colleagues will cut rates a sixth time at their next meeting June 26-27, by either one-quarter or one-half percentage point. Some say that could be the last reduction in the Fed's latest credit-easing campaign.

While economists are keeping their eye on inflation creep, many project that higher prices for energy are more likely to take a bite out of companies' profits than be passed along to consumers in the form of higher prices _ a difficult undertaking when the economy is weak.

The reading on consumer inflation comes a day after the government reported that prices at the wholesale level inched up by just 0.1 percent in May.

During the first five months of this year, consumer prices were rising at an annual rate of 4 percent, compared with 3.4 percent for all of 2000. The pickup largely reflects soaring energy costs, which have increased at an annual rate of 16.3 percent this year.

In May, all energy prices shot up by 3.1 percent, following a 1.8 percent increase the month before. That marked the largest gain since January.

Gasoline prices led the way, increasing 6 percent in May, the biggest leap in eight months. Electricity costs jumped 1.3 percent, the largest increase since January. Fuel oil costs rose 0.5 percent.

Gasoline prices during a seven-week period ending in mid-May soared by a whopping 31-cent-a-gallon average nationwide and 43 cents in the Midwest, according to the Energy Department's Energy Information Administration.

During the past month, prices declined by 7 cents on average nationwide, but could rebound if there are supply or refinery problems, the administration said.

Higher energy prices helped to lift costs for transportation, which rose 1.2 percent in May. Airfares were up 0.8 percent.

Food prices increased 0.3 percent, following a slim 0.1 percent gain in April. Rising prices for pork, beef and dairy products outweighed falling prices for poultry, fruits and vegetables.

Clothing prices fell 0.9 percent as retailers discounted merchandise to lure shoppers into stores. Car prices edged down 0.1 percent and prices for tobacco products fell 1.3 percent, the biggest drop since December.